A homeowner's association (HOA) is an organization responsible for the general upkeep and maintenance of common areas in a residential subdivision. The HOA may be run by a management firm or the real estate developer but is typically turned over to the residents once development is complete. An HOA is required to keep accounting books which accurately reflect the dues collected, what types of expenses are incurred, show balances of reserves for special projects and various other items. A basic accounting system may be implemented without too much difficulty.
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Purchase accounting software tailored for an HOA if you don't already own software. You don't have to use specific HOA software if you already own other accounting software. Condo Manager and TOPS are software providers which specialize in HOA accounting needs, whereas Quickbooks is general financial software that can be used to meet basic HOA accounting requirements. Complete the tutorial and read the manuals delivered with the software you purchase to understand how to set up your HOA in the system.
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Ensure you have a solid understanding of HOA accounting requirements. The California Association of Homeowner's Associations is a good resource to learn more about the basic HOA requirements.
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Establish a consistent naming convention for your account numbers before you begin to enter them. For instance, you may decide that all asset accounts will start with the number "1," liability accounts "2," revenue accounts "3," expense accounts "4" and equity accounts "5."
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Create the accounts you will use in the software system. The basic asset accounts you will need are Cash, Checking, Accounts Receivable, Deferred Expenses and Fixed Assets. For the liability accounts, you will need Accounts Payable, Deferred Revenue and Loans. Revenue accounts will include Dues and Interest Income. Accounts for most expenses will be Utilities, Insurance, Maintenance, Custodial, Interest, Fees, Taxes and Reserve Expense. Finally, Retained Earnings and Reserves will comprise the equity accounts. Every HOA has specific needs, but this list of accounts provides a solid basis to begin entering transactions and can be accomplished using any HOA or generic financial accounting software.
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Make the opening balance entry in your new software system. This entry is made prior to making your standard, daily entries moving forward. This entry should not include any revenue or expense accounts. For instance, if the HOA has $1,000 in the bank from previous homeowner dues, the entry will simply be a debit to Checking for $1,000 and a credit to Retained Earnings for $1,000. At this point you have an opening balance sheet and are ready to move forward recording daily activity.
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Enter your budget numbers for each revenue and expense account. The method of establishing the budget numbers will depend on the software you are using. Budgeting typically requires establishing a separate ledger from the one you use to record your HOA's daily activity. Read the respective section of your software manual to understand the specifics regarding the creation of budgets in your software system.
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Learn to run the basic reports delivered with your software. The most basic reports are Balance Sheet, Income Statement, Statement of Cash Flow, and Budget vs. Actual. These should be delivered with any financial software you use.
